Was
Greece Set Up To Fail?
Raúl
Ilargi Meijer
18
July, 2015
I
started writing this on my last night in Athens for now, Wednesday,
and had no time to finish it then:
On
the eve of my temp absence from this great city, a few things. I
could simply extend my stay, which might be slightly cheaper, but A)
flights to Athens cost less all the time, and B) I have to go see my
mom in Holland, who’s not doing well at all. On top of that, Nicole
arrived in Holland last week, and we might as well just fly out back
here together in a few weeks.
My
‘job’ here is by no means done, anyway. Because of the general
strike today, another Solidarity Clinic that I wanted to donate some
of your AE for Athens Fund money to, is closed (update on the Fund
tomorrow). Parliament is debating the latest Troika strangle plan as
we speak, and who knows what tomorrow will bring?
An entire economy
is being deliberately suffocated, and all in all it’s just total
madness. Quiet madness, though (update: and then the riots broke
out..).
Two
things I’ve been repeatedly asked to convey to you are that:
1)
you can’t trust any Greek poll or media, because the media are so
skewed to one side of the political spectrum, and that side is not
SYRIZA (can you imagine any other country where almost all the media
are against the government, tell outright lies, use any trick in and
outside the book, and the government still gets massive public
support?!),
and:
2)
Athens is the safest city on the planet. I can fully attest to that.
Not one single moment of even a hint of a threat, and that in a city
that feels very much under siege (don’t underestimate that). And
people should come here, and thereby support the country’s economy.
Don’t go to Spain or France this year, go to Greece. Europe is
trying to blow this country up; don’t allow them to.
Then:
I was reminded of something a few days ago that has me thinking -all
over- ever since. That is, to what extent has Greece simply been a
set-up, and a lab rat, for years now? I’m not sure I can get to the
bottom of this all in one go, but maybe I don’t have to either.
Maybe the details will fill themselves in as we go along.
One
Daniel Neun wrote on Twitter, in German, translation mine, that:
Greece’s
2009 deficit was retroactively manipulated upward through a
collaboration of the EU, IMF, PASOK, Eurostat (EU statistics bureau)
and Elstat (Greek statistics bureau). That is the only reason why
interest rates on Greek sovereign bonds skyrocketed in the markets,
which in turn made Greek debt levels skyrocket.
The
political and media narrative has consistently been that Greece
“unexpectedly” and “all of a sudden” in late 2009, when a new
government came in, was “found out” to have much higher debt
levels than “previously thought”. And then had to appeal for a
massive bailout. Obviously, Neun’s version is quite different. His
doesn’t look like just another wild assumption, since he names a
few sources, among which this from Kathimerini dated January 22,
2013:
The
head of Greece’s statistics service, Andreas Georgiou, and two
board members at the Hellenic Statistical Authority (ELSTAT) are to
face felony charges
regarding the alleged manipulation of the country’s deficit figure
in 2009.
Financial
prosecutors Spyros Mouzakitis and Grigoris Peponis have asked a
special magistrate who deals with corruption issues to investigate
whether claims that Georgiou, the head of the national accounts
department Constantinos Morfetas and the head of statistical
research, Aspasia Xenaki, were responsible for massaging the figures
so that Greece’s deficit appeared larger than it actually was,
triggering Athens’s
appeal for a bailout.
The
three face charges of dereliction of duty and making false
statements. Ex-ELSTAT official Zoe Georganta caused a storm in 2011
when she accused
Georgiou of pumping up Greece’s deficit to over 15% of GDP,
which was more than
three times higher than the government had forecast in
2009.
However,
she told a panel of MPs last March that she knew of no organized plan
behind this alleged manipulation of statistics, instead blaming the
politicians that handled Greece’s passage to the EU-IMF bailout of
“inexperience, inability or
maybe some of them profited.”
The former ELSTAT official claimed that the deficit for 2009 should
have been 12.5% of GDP and could
have easily been brought to below 10% with immediate measures.
As
well as this from Greek Reporter dated June 18 2015:
Greece’s
deficit figures for 2009 and 2010 were deliberately and artificially
inflated, and this was at least partly responsible for the imposition
of bailouts and austerity programs on the country,
a former vice president of the Hellenic Statistical Authority
(ELSTAT), Nikos Logothetis, said.
Testifying
before a Parliamentary Investigation Committee on examining and
clarifying the conditions under which Greece entered its bailout
programs and the accompanying Memorandums, Logothetis called ELSTAT
president Andreas Georgiou a “Eurostat pawn” that had converted
the statistics service into a “one-man show.” He also accused
Georgiou of bending the rules and “using tricks” to bump up the
deficit’s size.
“A
lot of the criteria were violated in order to include public
utilities in the deficits. The
deficit was enlarged even more by the one-sided fiscal logic of
ELSTAT president Andreas Georgiou. It
should not have been above 10%. The
‘alchemy’ that was carried out demolished our credibility, drove
spreads sky high and we were unable to borrow from the markets. The
enlargement of the deficits legitimized the first Memorandum and
justified the second for the implementation of odious measures,”
Logothetis said.
Noting
that this was the third
time he was testifying,
Logothetis pointed out that Georgiou’s practices had been
questioned by himself and other ELSTAT board members (most
prominently by Zoe Georganta) but Georgiou
had chosen to silence them so that the deficit figure was released
only with his own approval and that of Eurostat.
Logothetis
claimed that Georgiou
had avoided meeting with ELSTAT’s board, even after Logothetis
resigned, because the board’s majority would have questioned his
actions.
He also insisted that “centers”
outside of Greece had played a role and needed someone on the
“inside,”
while he suggested that “someone
wanted to bring the IMF into Europe.”
The
former ELSTAT official said he
was led to this conclusion by “seeing spreads rise as a result of
the statistical figures until we reached a real enlargement of the
deficits, violating the until-then not violated Eurostat criteria.”
A
view from the ground was provided earlier today by my friend Dimitri
Galanis in Athens when I asked him about this:
Let
me help you a bit: September 2008 Wall Street crashes. For a whole
year the whole planet is furious against TBTF banks and filthy rich
bank CEOs. A year later – 2009 – the Deus ex machina – Georges
Papandreou, then the newly elected Greek PM, “discovers” all of a
sudden that Greek debt was bigger than everybody “imagined”.
The
EU is “surprised” – Oh nobody knew!!! [everybody knew] Et
voila: The Wall Street crisis becomes the Greek and Eurozone crisis.
IMF gets a footing in the eurozone. Wall Street, French and German
banks get bailed out. Greece suffers – Eurozone on the brink of
collapse.
Greece
is the tree – the rest is the forest .
And
then I saw a piece by former US Secretary of Labor Robert Reich
yesterday:
The
Greek debt crisis offers another illustration of Wall Street’s
powers of persuasion and predation, although the Street is missing
from most accounts. The crisis was exacerbated years ago by a deal
with Goldman Sachs, engineered by Goldman’s current CEO, Lloyd
Blankfein. Blankfein and his Goldman team helped Greece hide the true
extent of its debt, and in the process almost doubled it.
And
just as with the American subprime crisis, and the current plight of
many American cities, Wall Street’s predatory lending played an
important although little-recognized role. In 2001, Greece was
looking for ways to disguise its mounting financial troubles. The
Maastricht Treaty required all eurozone member states to show
improvement in their public finances, but Greece was heading in the
wrong direction.
Then
Goldman Sachs came to the rescue, arranging a secret loan of €2.8
billion for Greece, disguised as an off-the-books “cross-currency
swap”—a complicated transaction in which Greece’s
foreign-currency debt was converted into a domestic-currency
obligation using a fictitious market exchange rate. As a result,
about 2% of Greece’s debt magically disappeared from its national
accounts.
For
its services, Goldman received a whopping €600 million, according
to Spyros Papanicolaou, who took over from Sardelis in 2005. That
came to about 12% of Goldman’s revenue from its giant trading and
principal-investments unit in 2001—which posted record sales that
year. The unit was run by Blankfein.
Then
the deal turned sour. After the 9/11 attacks, bond yields plunged,
resulting in a big loss for Greece because of the formula Goldman had
used to compute the country’s debt repayments under the swap. By
2005, Greece owed almost double what it had put into the deal,
pushing its off-the-books debt from €2.8 billion to €5.1 billion.
In
2005, the deal was restructured and that €5.1 billion in debt
locked in. Perhaps not incidentally, Mario Draghi, now head of the
ECB and a major player in the current Greek drama, was then managing
director of Goldman’s international division. Greece wasn’t the
only sinner. Until 2008, EU accounting rules allowed member nations
to manage their debt with so-called off-market rates in swaps, pushed
by Goldman and other Wall Street banks.
In
the late 1990s, JPMorgan enabled Italy to hide its debt by swapping
currency at a favorable exchange rate, thereby committing Italy to
future payments that didn’t appear on its national accounts as
future liabilities. But Greece was in the worst shape, and Goldman
was the biggest enabler.
Undoubtedly,
Greece suffers from years of corruption and tax avoidance by its
wealthy. But Goldman
wasn’t an innocent bystander: It padded its profits by leveraging
Greece to the hilt—along
with much of the rest of the global economy. Other Wall Street banks
did the same. When the bubble burst, all
that leveraging pulled the world economy to its knees.
Even
with the global economy reeling from Wall Street’s excesses,
Goldman offered Greece another gimmick. In
early November 2009, three months before the country’s debt crisis
became global news, a Goldman team proposed a financial instrument
that would push the debt from Greece’s healthcare system far into
the future.
This
time, though, Greece didn’t bite.
As
we know, Wall Street got bailed out by American taxpayers. And in
subsequent years, the banks became profitable again and repaid their
bailout loans. Bank shares have gone through the roof. Goldman’s
were trading at $53 a share in November 2008; they’re now worth
over $200. Executives at Goldman and other Wall Street banks have
enjoyed huge pay packages and promotions. Blankfein, now Goldman’s
CEO, raked in $24 million last year alone.
Meanwhile,
the people of Greece struggle to buy medicine and food.
Note:
when Reich says that “..Goldman
wasn’t an innocent bystander: It padded its profits by leveraging
Greece to the hilt..”,
he describes a tried and true Wall Street model. This is how
investment firms like for instance Mitt Romney’s Bain Capital
operate: take over a company, load it up with (leveraged) debt, strip
its assets and then throw the debt-laden remaining skeleton back unto
the public sphere. In this sense, the Troika and its Wall Street
connections function as a kind of venture/vulture fund with regards
to Greece. Nothing new, other than it’s never been perpetrated on a
European Union country before.
So
what do you think: was Greece set up to fail from at least 6 years
ago, has it all been a coincidence, or did they maybe just get what
they deserve?
Here’s
a short timeline. In October 2009, Papandreou becomes the new PM.
Shortly thereafter, he “discovers” with the help of Elstat head
Andreas Georgiou that the real Greek deficit is not the less than 5%
the previous government had predicted, but more than 15%. Within
months, salaries and pensions or cut or frozen and taxes are raised.
That apparently doesn’t achieve the intended goals, so Papandreou
asks for a bailout.
Within
10(!) days, ECB, EU and IMF (aka Troika) fork over €110 billion.
The conditions the bailout comes with, cause the Greek economy to
fall ever further. Moreover, everyone today can agree that no more
than 10% of the €110 billion ever reaches Greece; the remainder
goes to the banks that had lent it too much money to begin with.
The
remaining investors -the big bailed out banks had fled by then- agree
to a 50% haircut, with even more odious conditions for Greece.
Papandreou wants a referendum over this and is unceremoniously
removed. Technocrat Lucas Papademos is appointed his successor. As
Athens literally burns in protest, a second bailout of €136 billion
is pushed through. More and deeper austerity follows.
By
now, a large segment of the population is unemployed, and pensions
are a fraction of what they once were. In an economy that depends to
a large extent on domestic consumption, there could hardly be a
bigger disaster. Papademos must be replaced because he has no support
left, and Samaras comes in.
He
allegedly posts a budget surplus, but that is somewhat ironically
only possible because the entire economy is no longer functioning.
Greek debt-to-GDP rises fast. The Greek people this time revolt not
by fighting in the streets, but by electing Syria.
And
that brings us back to January 25 2015. And eventually to Thursday,
July 16 2015.
What
have the bailouts achieved? Well, the Greek economy is doing worse
than ever, and the people are poorer than ever. Both have a lot more
bad ‘news’ to come. So says the latest bailout imposed on Tsipras
at gunpoint.
To
go back to 2009, if the Elstat people who testified -multiple times-
before the Greek Parliament were right, there would have been either
no need for a bailout, or perhaps a much smaller one. Which,
crucially, would not have required IMF involvement.
It
therefore doesn’t look at all unlikely that Greece was saddled with
an artificially raised deficit, and that the intention behind that,
all along, was to get the Troika ‘inside’ for the long run. So
the country could be stripped of all its assets.
The
bailouts needed to be as big as they were to 1) successfully make the
international banks ‘whole’ that had lent as much as they had
into the Greek economy, 2) get the IMF involved, 3) and absolve the
notorious -and cooperative- domestic oligarchy from any pain. And
make all the usual suspects a lot more money in the process.
The
added benefit was that it was obvious from the start that the Greeks
would never be able to pay the Troika back, and would be their debt
slaves for as long as the latter wanted, giving up all their
treasured possessions in the process.
Or,
alternatively, it could all have been a terribly unfortunate
coincidence. It would be a curious coincidence, though.
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